Changes to EU VAT from July 2021
In July 2021 there will be 4 significant changes to the way VAT operates in the EU. Although the UK will no longer be following EU VAT rules by the time these changes are introduced, they will still impact many UK businesses that sell in the EU. An important change to our trading relationship with the EU will be the requirement to appoint a fiscal representative. A fiscal representative is a local business that is jointly and severally liable for VAT owed by the business. Many EU countries are insisting that UK businesses appoint a fiscal representative in the country of VAT registration before 1 January 2021 to ensure there is no delay to trade. With the changes outlined below the number of VAT registrations in the EU should reduce and therefore the cost of fiscal representative charges should also reduce.
The changes are:
- Abolishing distances sales thresholds and extending the Union MOSS scheme to cover sales of goods as well as all B2C services
- Abolishing the small consignment relief and introducing an import scheme for goods up to €150
- Making marketplaces the supplier of goods in certain situations
- Extending the non-Union MOSS to cover all B2C supplies of services
1. Abolishing distance sales thresholds
Under current EU rules, B2C sales of goods in the EU are taxed based on the location of the goods at the time of sale until the distance sales threshold is breached in the customer’s country. Once breached, the seller must register for and charge VAT in that country. The changes will see these thresholds withdrawn.
The MOSS (mini one stop shop) return currently used for B2C supplies of digital services will be extended and renamed the OSS (one stop shop). This will be a quarterly return filed in the country in which the seller is established which will report the sales by EU country and the VAT due. It will also include B2C supplies of services, although domestic sales should continue to be filed through the domestic return in most circumstances. The VAT is paid to their local tax authority for onward distribution.
Non-EU sellers are also able to file OSS returns and will have to select a country to register. This will normally be the country where stock enters the EU.
These changes mean that sellers holding multiple registrations (due to breaching distance sales thresholds) will be able to deregister although it is important to note that businesses holding stock in different EU countries will be required to remain VAT registered in those countries.
The €10,000 threshold that was introduced in 2019 for MOSS will apply to sales that fall within OSS. Therefore, new businesses with sales to EU consumers below €10,000 will not be required to register for OSS. The threshold does not apply to non-EU businesses and therefore UK businesses will need to register as soon as they commence trading in the EU.
2. Abolishing the small consignment relief
The €22 VAT exemption on low value consignments being imported into the EU for delivery to consumers will be withdrawn. From July 2021, VAT must be charged at the time of sale (at the rate of VAT in their customers country) for consignments not exceeding €150 and paid via a new return called the ‘Import One Stop Shop’. No import VAT will be paid by the seller. The IOSS will report distance selling throughout the EU of consignments imported into the EU.
Non-EU sellers will have to register in one EU member state to be able to file these returns.
The import declaration for these entries will be simplified.
3. Marketplaces become the deemed seller and VAT collector
In certain circumstances, online marketplaces will be deemed to be the seller. In order for the marketplace to become the deemed seller, it must be facilitating the sale.
A marketplace, which includes online platforms, portals or similar means that introduce customers and sellers offering goods for sale is facilitating a sale if:
- it controls the terms and conditions of the sale
- it authorises the charge to the customer in respect of the payment for the supply; and/or
- it orders or delivers the goods.
It is not considered to facilitate the sale if it only provides one of the following services:
- payment processing
- listing or advertising the goods
- redirecting customers to other marketplaces.
The new VAT treatment will apply when the marketplace is facilitating a B2C sale for:
- imports by EU and non-EU sellers not exceeding €150; and
- goods sold by a non-EU seller of any value on a cross border or domestic basis.
When a sale occurs between the seller and the customer the following transactions will occur from a VAT perspective:
- The seller will sell the goods to the marketplace – for imported goods, the sale will be deemed to occur outside the EU, for goods in the EU this supply will be zero-rated and will allow the seller to reclaim any VAT it incurs on purchases.
- The marketplace will sell the goods to the consumer – VAT will be charged based on the rate in force in the consumer’s country.
4. Extending non-Union MOSS to cover all B2C supplies of services
The OSS (extended MOSS) will allow businesses not established in the EU supplying services to consumers in the EU to declare the VAT on the OSS return. This covers admission charges, work on immovable property, transport services and performance-based services.
If you would like to discuss any of the information in this article or would like to discuss support with IOSS/OSS or fiscal representation, please contact our VAT partner Alison Birch.